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IRS Data Shows Steep Decline in Estates Owing Tax Over Last Decade

October 22nd, 2010

Only 0.6 percent of those dying in the U.S. in 2008 owed any estate tax, according to new data released by the IRS. This means that 99.4 percent of estates were too small to pay an estate tax, which the Republican party and some wealthy individuals have been fighting to repeal entirely.

The data also show that the number of estates filing taxes decreased from more than 108,000 in 2001 to fewer than 34,000 in 2009. As Julie Garber writes in her Wills & Estate Planning Blog, "[I]t doesn't take a rocket scientist to figure out why." It is due to an increase in the filing threshold called for in the tax law President Bush signed in 2001, which increased the threshold from $675,000 in 2001 to $3.5 million in 2009. The number of estates that ended up paying any tax after filing a return dropped from 51,700 in 2001 to 14,700 in 2009.

Daniel N. Steven, LLC

Daniel N. Steven is an attorney licensed in Maryland and the District of Columbia. with many years of experience in complex estate planning and Elder Law. He is rated by Martindale-Hubbell as an AV Preeminent 5.0 out of 5 rated attorney.

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Attorney Samantha Simmons Fredieu is an associate at Hale Ball. Ms. Fredieu graduated magna cum laude from Vermont Law School where she was the symposium editor on the Vermont Law Review, a production editor on the Vermont Journal of Environmental Law, and a member of the Moot Court Advisory Board. She has clerked for...

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The estate tax was temporarily repealed for 2010 but will revert to a $1 million exemption in 2011 barring Congressional action to the contrary. Congress is now trying to decide whether to continue this and other Bush-era tax cuts.

The federal government took in about $20.6 billion in tax payments in 2009 from the estates of those dying in 2008. (Estate taxes are usually filed the year after the year of death.) Of the millionaires who died in 2008 and had an estate tax liability, an average of 20.4 percent of their estates went to the federal government, 2.5 percent went to the state, 8.6 percent went to charity and more than 68 percent went to heirs, according to calculations based on the IRS data by the advocacy group Citizens for Tax Justice. The estate tax liability threshold was $2 million in 2008.

"One of the strangest things about politics in our nation's capital is that the taxes that get attacked the most by lawmakers are those taxes which affect the fewest, and the richest, people," Citizens for Tax Justice says in its report on the IRS data. The report includes tables broken down by state showing the number and percentage of estates owing tax between 2000 and 2009.

For more on the IRS data from the aptly named blog Estate of Confusion, click here.